T.C. Memo. 1997-265
UNITED STATES TAX COURT
MICHAEL JAMES HEUN, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 12167-96. Filed June 12, 1997.
Michael James Heun, pro se.
Osmun R. Latrobe, for respondent.
MEMORANDUM OPINION
CHIECHI, Judge: Respondent determined the following
deficiencies in, and additions to, petitioner's Federal income
tax:
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Additions to Tax
Section Section
Section 6653(b)(1)( 6653(b)(1)( Section Section
Year Deficiency 6653(b)(1)1 A) B) 6653(b)(2) 6654
1983 $8,389 $4,195 -- -- * --
1984 ** 6,412 -- -- * --
1985 ** 7,021 -- -- * --
1986 14,340 -- $10,755 * -- $694
1987 ** -- 17,801 * -- --
1988 28,763 21,572 -- -- -- 1,850
* 50 percent of the interest on the portion of the underpayment attributable to
fraud.
** Previously assessed upon filing of delinquent Federal income tax return
(return).
The issues for decision are:
(1) Is petitioner liable for the deficiencies determined in
the notices of deficiency (notices)? We hold that he is.
(2) Is petitioner liable for the additions to tax for fraud
for the years at issue? We hold that he is.
(3) Is petitioner liable for the additions to tax under
section 6654 for 1986 and 1988? We hold that he is.
Background
This case was submitted on the basis of the facts and
evidence that the Court deemed to be established for purposes of
this case in its Order under Rule 91(f) dated January 10, 1997.
At the time the petition was filed, petitioner resided in
Bethany, Oklahoma.
Petitioner filed a joint return for 1983. He did not
1
All section references are to the Internal Revenue Code in
effect for the years at issue. All Rule references are to the
Tax Court Rules of Practice and Procedure.
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thereafter file a return for that year claiming "married filing
separate" status. Petitioner did not timely file returns for
1984, 1985, 1986, 1987, and 1988.
On November 20, 1990, petitioner was convicted by a jury of
attempting to evade or defeat tax for 1983 under section 7201 and
of willfully making and subscribing a false return for the same
year under section 7206(1). On the same date, petitioner was
convicted by a jury of willfully failing to file returns for
1984, 1985, 1986, 1987, and 1988 under section 7203. The U.S.
Court of Appeals for the Ninth Circuit affirmed those convic-
tions.
After serving a portion of his sentence for the foregoing
crimes, petitioner was placed on probation. As one of the
conditions of that probation, petitioner was required to file a
return for each of the years 1984 through 1988. As required by
law, petitioner was to report in those returns his wages from
employment during those years as well as other income and deduc-
tions.
On or about August 5 or August 9, 1993, petitioner filed
returns for the years 1984 through 1988 with the Internal Revenue
Service Center in Austin, Texas (Austin Service Center). Each of
those returns bore petitioner's signature and the words "without
prejudice" appeared above his signature. Petitioner claimed
"married filing separately" status in each of the returns for the
years 1984 through 1988 and reported total income from wages for
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those years in the following amounts:
Year Wages
1984 $52,500
1985 57,300
1986 58,526
1987 87,645
1988 111,350
Attached to each of the returns for 1984 through 1988 were
documents entitled "Statements" and "Declarations" of petitioner
in which, among other things, he asserted that the wages that he
received were not taxable income and that he was a nonresident
alien.
At or very shortly before the time petitioner filed returns
for 1984 through 1988 with the Austin Service Center, he filed a
Form 1040NR (U.S. Nonresident Alien Income Tax Return) for each
of those years with the Internal Revenue Service Center in
Philadelphia, Pennsylvania, in which he reasserted his claim that
he was a nonresident alien and that he owed no taxes to the
United States.
During each of the years at issue, petitioner, who was
licensed as a certified public accountant by the State of Ari-
zona, was employed by Dixon Properties, Inc. and/or Dixon
International Holdings (U.S.A.), Inc. (Dixon) as vice president
in charge of finance and corporate comptroller. The major source
of income for petitioner during the years 1983 through 1988 was
Dixon. In his capacity as financial officer of Dixon, petitioner
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was able to, and did, prevent a Form W-2 (Wage and Tax Statement)
from being sent by that company to him, the Internal Revenue
Service, or the State of Arizona with respect to his wage income
for each of the years 1984 through 1988. Nor were any Forms 1099
filed in the name of petitioner for those years.
During 1985, petitioner established The Five Star Trust and
began to transfer certain of his assets into the name of that
trust.
Discussion
Petitioner bears the burden of proving that respondent's
determinations in the notices of the deficiencies and the addi-
tions to tax under section 6654 are in error. Rule 142(a); Welch
v. Helvering, 290 U.S. 111, 115 (1933). Respondent bears the
burden of proof on the fraud issue, and that burden is to be
carried by clear and convincing evidence. Rule 142(b); sec.
7454(a).
Throughout the course of this proceeding from its commence-
ment when petitioner timely filed a petition in this Court
through the brief that he filed after this case was submitted,
petitioner has persisted in advancing matters that are, inter
alia, frivolous, groundless, irrelevant, immaterial, and/or
nonsensical.
On the record before us, we find that petitioner has failed
to show error in respondent's determinations of the deficiencies
and the additions to tax under 6654. Consequently, we sustain
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those determinations.
We now turn to the fraud issue. We deal separately with
1983, the year for which petitioner was convicted of, inter alia,
criminal tax evasion under section 7201. We conclude that that
conviction collaterally estops petitioner from denying that the
underpayment for 1983 is due to fraud for purposes of section
6653(b). E.g., DiLeo v. Commissioner, 96 T.C. 858, 885-886
(1991), affd. 959 F.2d 16 (2d Cir. 1992).
With respect to each of the years 1984 through 1988,
respondent must prove by clear and convincing evidence that an
underpayment exists and fraudulent intent. Rule 142(b); sec.
7454(a). Petitioner filed delinquent returns for each of those
years in which he showed that he received wages. On the record
before us, we find that an underpayment exists for each of the
years 1984 through 1988.
In order to prove fraudulent intent, the U.S. Court of
Appeals for the Tenth Circuit (Court of Appeals), to which an
appeal in this case would ordinarily lie, has held that
a taxpayer is not liable for the civil fraud penalties
unless he commits some affirmative act of concealment
or misrepresentation. Mere failure to file, whether
disclosed or not, does not justify the fraud penalties
even when the taxpayer knows that taxes are due. [Zell
v. Commissioner, 763 F.2d 1139, 1146 (10th Cir. 1985),
affg. T.C. Memo. 1984-152.]
Applying the foregoing proof requirements that the Court of
Appeals imposes on respondent, see Golsen v. Commissioner, 54
T.C. 742 (1970), affd. 445 F.2d 985 (10th Cir. 1971), respondent
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must show by clear and convincing evidence some affirmative act
by petitioner of concealment or misrepresentation, such as filing
false information or attempting to mislead respondent, see Zell
v. Commissioner, supra at 1146, in order to prove fraudulent
intent for each of the years 1984 through 1988.
The record in this case establishes that, in his capacity as
financial officer of Dixon, his employer, petitioner, a licensed
certified public accountant, was able to, and did, prevent a Form
W-2 from being sent by that company to the Internal Revenue
Service with respect to the money that that company paid him
during each of the years 1984 through 1988. It is implausible to
us that petitioner's training and experience as a certified
public accountant would lead him to conclude that his employer
was not required to file a Form W-2 for any of those years. We
find petitioner's preventing his employer from filing a Form W-2
for any of the years 1984 through 1988 to be an affirmative act
by petitioner of concealing the money that that company paid him
during those years. See Zell v. Commissioner, supra at 1146. In
addition, for each of the years 1984 through 1988, petitioner
failed to file timely a return,2 was convicted of willfully
failing to file a return under section 7203, and attempted to
evade reporting a substantial amount of income by such failure.
2
Petitioner filed delinquent returns for the years 1984 through
1988 because he was required to do so as one of the conditions of
his being placed on probation after he served a portion of his
sentence for his convictions under secs. 7201, 7206(1), and 7203.
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Based on our review of the record in this case, respondent
has persuaded us by clear and convincing evidence of petitioner's
fraudulent intent with respect to the underpayment for each of
the years 1984 through 1988 that is attributable to his wage
income. Accordingly, we sustain respondent's determinations (1)
for each of the years 1984 and 1985 (a) under section 6653(b)(1)
and (b) under section 6653(b)(2) to the extent based on the
previously assessed underpayment for each such year that is
attributable to petitioner's wage income;3 (2) for each of the
years 1986 and 1987 under section 6653(b)(1)(A) and (B); and (3)
for 1988 under section 6653(b)(1).
Although respondent has not requested a penalty under
section 6673, this Court is authorized to impose such a penalty
in cases where the taxpayer's position is frivolous or groundless
or the proceeding was instituted or maintained primarily for
delay. Sec. 6673(a)(1)(A) and (B); Coulter v. Commissioner, 82
T.C. 580, 584-586 (1984). Under the circumstances presented
here, we conclude that petitioner's positions in this case that,
3
The notice of deficiency for petitioner's taxable years 1984
and 1985 determined, inter alia, that petitioner is liable for
each such year for the addition to tax under sec. 6653(b)(2) with
respect to a previously assessed underpayment that is attribut-
able to not only petitioner's wage income for 1984 and 1985 in
the amounts of $52,500 and $57,300, respectively, but also
capital gain and interest income of $967 and $1,600, respec-
tively. Respondent has failed to prove the requisite fraudulent
intent with respect to such assessed underpayment for each of the
years 1984 and 1985 that is attributable to such capital gain and
interest income. See sec. 6653(b)(2).
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inter alia, he is not liable for income tax on the wages that he
received during the years 1984 throughout 1988 and that he was a
nonresident alien during those years are frivolous and ground-
less. We further conclude that petitioner instituted and main-
tained this proceeding primarily for delay. Accordingly, we hold
that petitioner is liable for a penalty under section 6673 in the
amount of $25,000.
To reflect the foregoing,
Decision will be entered
under Rule 155.